Industry Insiders Discuss the 2011 Legislative Session

Heather Stewart

April 1, 2011

The end of the legislative session has not brought an end to political controversy. While the debates about immigration and governmental transparency rage on, industry representatives weigh in on the measures that matter most to businesses in Utah—including the acclaimed and reviled immigration reform.
Immigration and Employers
For employers, the most impactful bill was probably HB116, the Immigration Guest Worker and Accountability bill. This bill does three significant things: creates a guest worker program for undocumented workers currently living and working in Utah, forms a guest worker program that will enable employers to sponsor Mexican workers through temporary visas, and establishes penalties for companies that don’t use the federal E-verify program to check the legal status of new employees.
Local business interests, including the Salt Lake Chamber, supported the guest worker programs outlined in the bill. “If you have the sort of business where you need work that’s been supplied by an immigrant workforce, it creates an opportunity for you to continue to use those workers in a legitimized way,” says Michael O’Brien, the state legal and legislative attorney for the Society of Human Resource Management.
Thomas Bingham, president of the Utah Manufacturers Association, is particularly interested in the cooperative program with Mexico, pointing out that it will allow employers to bring in highly skilled, trained workers—not just manual laborers. “Even in our down economy with so many people looking for work, we still have manufacturing jobs in this state and throughout the country that go unfilled because no one has the skill sets to take those jobs,” he says.
In 2010, the State Legislature mandated that employers with 15 or more employees use the E-verify system. However, the law had no “teeth” to it, says O’Brien. This year, legislators added a tiered system of penalties, starting out with fines and culminating in the possible revocation of a company’s business license for “knowingly employing undocumented workers.”
No portion of HB116 will go into effect—including the new penalties—unless the federal government issues a waiver to allow Utah to implement the guest worker program for current undocumented residents, explains O’Brien.
Many manufacturers have already begun using E-verify, says Bingham, and the UMA did not object to strengthening the law. Some employers have resisted using the system, saying that it’s not yet reliable enough. But Bingham hopes that use of E-verify will create a “safe harbor” for employers. “If I go to the trouble of doing E-verify as an employer, and it says this individual is legal to hire, and I find out later that…they are not legal to hire, you can’t come back and prosecute me for having hired them.”
Higher Education
One of the most notorious sound bites to come out of the session was Sen. Howard Stephenson’s assertion that universities provide too many “degrees to nowhere.” But the real problem, says Bingham, is that too many students drop out before completing their degrees.
Because degree-granting institutions have been traditionally funded based on the number of students enrolled, colleges and universities are “out there trying to get all the students they can get,” Bingham says. The completion rate is less than 50 percent at state institutions, he notes, while Brigham Young University has achieved a rate closer to 80 percent—largely because it rigorously screens and selects top applicants.
New legislation, SB97, changes the way the state’s institutions are funded. Instead of funding based on head count, the schools will receive “mission-based” funding. The new system will take some time to implement, and the first step will be defining missions for each school. Bingham says that when schools focus on a specific mission, like scientific research—instead of pulling in as many students as possible—the completion rates will go up.
Bingham, who chairs the board of trustees for the Utah College of Applied Technology, says, “A lot of folks have no business in those colleges and universities; they’re washing out.” Those students should be directed into training programs, he explains, adding that nearly 70 percent of jobs don’t require a four-year degree. “They require some post high school training, but it’s not necessarily a degree,” he says. “Most of our UCAT programs, like welding and machining and even nursing, have a completion and placement rate of 80 – 90 percent. Some of them are 100 percent because employers are taking them out of the classroom before they finish because they need them.”
While the details have yet to be worked out, the new system hopefully will do a better job of aligning the education system with workforce needs, he says.
Innovation
Nearly every government agency and program faced potential budget cuts this year—including the Centers of Excellence and World Trade Center Utah, which were both in danger of being de-funded until the technology community rallied in support of these critical programs. So the creation of a brand new, $1.5 million incentive program targeted to the life science industry was a major win.
“We’ve got some huge success stories in medical devices, but there are also a lot of small ones that struggle for funding,” says Richard Nelson, founder and CEO of the Utah Technology Council (UTC). Developing a new medical device and then getting approval from the FDA can take years—and most investors are not patient enough to wait that long to see returns.
The new incentive was championed by leaders like Scott Anderson of Zions Bank and venture capitalist Gary Crocker, as well as the UTC. “We focused on the smaller medical device companies by putting incentives for investors to make them more attractive investments,” explains Nelson.
The incentive program includes an individual tax credit for investments made in smaller medical device companies—up to 35 percent of the investment over a three-year period. The program also provides a 100 percent state capital gains tax for investments held for more than two years in a qualified medical device company.
Other successes in this session, says Nelson, were measures to assign letter grades to public schools and create a statewide online education program. The grading system is “a way to create transparency and to recognize and reward progress by giving all schools in the state a letter grade,” he says, adding that the progress schools have made will be taken into consideration when assigning grades.
The online initiative will enable high school students to take, on an á la carte basis, online classes currently offered by four school districts, four charter schools and the Electronic High School of Utah. “Some kids just learn better online,” Nelson says.
He describes both measures as “the innovation bills,” which were aimed at improving the public school system and student outcomes.
Health Care Reform
The cost of Utah’s Medicaid program has essentially doubled over the past decade—far outpacing the average rate of inflation. Legislators passed a measure to try to rein in growth for the $2 billion program by creating a managed-care model similar to the HMO programs from the ‘90s.
“It’s similar to managed care in the past, where rather than being able to pick whatever hospital, whatever doctor, [patients] would essentially be given a more limited amount of places to go, but they would manage the care better so the overall cost would be less in the system, but also the care for that patient would be more coordinated,” says David Gessel, vice president of government affairs for the Utah Hospitals and Health Systems Association.
The hope is that through coordination of care, Medicaid patients can receive better preventative care and appropriate treatment for long-term conditions. “That Medicaid patient would have a primary care doctor…or a caseworker that would get them to the right place at the right time at the right cost, instead of entering the system the most expensive way, which is through the emergency room,” he says.
The new program will also benefit patients, says Gessel, because once they enter the system, they will know exactly where to go for care. Currently, many physicians no longer accept Medicaid patients due to reduced reimbursements, so it can be difficult for patients to access the care they need.
Medicaid reform has implications for all state residents and business owners. “If we don’t find a way to reform Medicaid, it’ll crowd out other state programs,” he says. Furthermore, the rates the federal and state governments pay “impact private insurance and the rates business people pay, because if they don’t pay their fair share, effectively the cost is shifted to private insurance. So private insurance is subsidizing Medicare and Medicaid in this country.”
According to Gessel, 8 – 10 percent of an average person’s premium goes to subsidize the underpayment of Medicare and Medicaid.
Utah will need to obtain permission from the federal government to implement the new Medicaid program.
Real Estate and Development
The real estate and construction industries were hit hard by the Great Recession—and this session the struggling industry found itself fighting off another threat: new taxes. Lawmakers considered imposing a real estate transfer tax, where buyers and sellers have to pay a tax equal to a percentage of the sale price. Dozens of other states mandate a real estate transfer tax, and the amount varies from half a percent up to 6 percent, according to DeAnna Dipo, president of the Salt Lake Board of Realtors.
“A real estate transfer tax can add up,” she says, pointing out that someone who sells a home and then buys a new one can end up paying tens of thousands in taxes.
This tax was ultimately defeated, along with a sales tax on service. While a tax on service would impact every trade, “in our industry, that affects every single person in a transaction when you’re buying or selling, which can be up to six or eight people. If you’re going to add a tax for service, that will just end up going back to the consumer,” says Dipo.
Another win for the industry were two bills that focused on developer fees and local district service amendments. The legislation “protects housing affordability by mandating reasonable development and impact fees. It provides flexibility for cities to lower or even suspend collection of impact fees,” explains Dipo. “It will really help as far as construction being able to move and stimulate growth again.”